Day: 2010/09/07

Links Sell Out—Debt, Law School Culture, the Lost Generation, & Break-even investments

Four from over the weekend:

(1)  Samuel J. Scott, “Debt Bubble: Will the Market Crash Because of College Costs?” in Considerations.

A somewhat conservative explanation for the accelerating higher education costs compared to those in housing and healthcare.  Those of you who are falling behind in your Dean Baker readings should note that the Federal Reserve negligently allowed the housing bubble to form, and that if research in pharmaceuticals were nationalized, taxpayers would save billions in healthcare costs.  Who knows, maybe we should make higher education free in some form of human capital contracts?  One quibble I have with those showing the graphic of how higher education has exploded over inflation and even over housing prices: look at the absolute size and not the relative increases.  In these cases, the housing bubble was $8 trillion while the student debt bubble is only $850 billion, about one tenth the size.

(2)  Chuck Newton, “Law School Culture and Law School Professors Are a Big Part of the Problem,” in Chuck Newton Rides the Third Wave

Newton refers to Ashby Jones’, “Are Law School Faculties Part of the Problem with Legal Education?” in the Wall Street Journal’s Law Blog, in which the author cites a soon-to-be published article in the South Carolina Law Review by Georgetown professor Brent Evan Newton (no relation to Chuck).  B. Newton’s article recommends spinning off one third of all law school faculty into research track positions and two thirds into practical teaching positions.  He hopes this will provide law students with educations better suited to the workplace.

Chuck Newton doesn’t buy it.

I think the bigger problem facing potential law students today is the unprecedented greed and disrespect shown by law schools and their faculties in setting tuition and costs…[W]ith their eyes set on money, rankings and prestige, instead of the well-being of what they are really there to accomplish, [they] cannot seem to do anything about it.  Almost like a drug addict, they know there needs to be change, but they just cannot seem to wean themselves from the addiction.

He then asks the multi-million dollar question:

My argument would be who should be responsible for paying the research staff? Those seeking a basic, primary legal education? Should the nerds be forced to pay for the geeks? Most good research universities raise their money through other sources than tuition. I can well imagine that entering law students would be forced to pay for the less relevant to them. Law schools as institutions cannot seem to show any self restraint when it comes to pricing. The theory must be no matter what they decide that the government and the private sector will loan enough money to the students to pay for it. The problem with this argument, however, is that real people get hurt and, instead of producing those deep thinking lawyers, they are deeply enslaving their graduates with debt that will last lifetime.

C. Newton’s solution is novel: encourage state licensing authorities to reject ABA-accredited juris doctors and opt for those educated in practically-oriented state-accredited law schools instead.  Sadly, I doubt state licensing authorities, likely trained at ABA schools, would willingly cast their law school peers into the cold.  I’d be impressed if they did, but the paramount model, the ABA-scorned Massachusetts School of Law, charges a mere $14,490 per year.  MSL does this by using employing judges and practicing lawyers as its instructors instead of paying 5-6-figure salaries to full-time scholars.  MSL’s graduates’ placements probably aren’t very exciting (certainly not since the housing bubble burst), but the one-half to one-third cost reductions cannot be ignored, especially when compared to regional law schools.

But wait.  Does anyone really expect private ABA law schools to cut tuition by more than half, turn over faculty and staff and slash salaries?  Universities would likely prefer inflicting the bubonic plague on their law schools—the casualties would be fewer.

(3)  Managing Partner, “The Lost Generation?” in The Legal Dollar

Managing Partner informs us that recent graduates and current law students comprise a lost generation that will never be hired or reconsidered.  Since most hiring occurs in law students’ 2L years, 3Ls should know the show’s over.  A quote for recent grads:

[O]nce a law student graduates, their legal education (which is really not that great in the first place from most law schools) starts to decay.  If they perform some non-legal work for a year, then many firms might consider them out of the market.  Certainly if they have no legal experience for 2 years, then they are pretty much out of the game.  That is, graduates without serious experience are really competing at a disadvantage with new grads. [My emphasis]

Bear in mind also that new grads with ever higher student debt will have every incentive to compete harder for work.  Managing Partner also devastates the bottleneck argument: demand for legal services is not going to increase in the future, and the accelerating growth in law graduates overwhelms any increase in demand.

(4)  Stephanie Francis Ward, “The Job Seekers,” in the ABA Journal

¿The ABA interviewed three grads and found how awful the market is for legal services?  The point being?… Who is the article’s audience?  The best it tells us is that law is a “risky” investment, with a few quotes by Bill Henderson.

The only nugget I saw was an ABA document, “The Value Proposition of Attending Law School,” which tells the public that law isn’t what it’s cracked up to be and carries a lot of debt.  It mentions former Northwestern Dean, David Van Zandt’s $65,315 minimum starting salary for law to be a break-even financial investment.  Footnote 12 states:

Dean Van Zandt’s estimate is based on the assumption that students would make $60,000 per year without going to law school, that law school tuition is $30,000 per year, that the student works for thirty years as a lawyer, and that the discount rate is 5%. His estimate does not take into account the opportunity cost of three years of foregone income, nor does he consider the cost of debt service on law school loans.

Few make $60,000 per year before law school.  Frequently, tuition is above $30,000 per year.  The current economy (see Managing Partner above) renders a 5% discount rate too low.  Many law students carry over $100,000 in debt, with interest that banks count but Van Zandt does not.  I hate to say this because I appreciate his effort, but Van Zandt’s break-even number is unrealistically low.  The ABA should’ve cited Herwig Schlunk’s numbers.  But his only work when the discount rate was 12% or less, and Managing Partner’s comments (though anecdotal) suggest the appropriate discount rate is remarkably higher.  The ABA couldn’t use those numbers without admitting to the extreme systemic problems legal education institutions are experiencing, though we should commend it for its candor in footnote 12.

[Update]: It only took two weeks, but I realized Van Zandt’s $65,315 number makes even less sense.  Anyone making $60,000 year is not going to forgo $180,000 in salary + $90,000 in tuition just to make $65,315 per year.  A $270,000 law degree over three years for a $5,315 raise?